Friday, January 29, 2010

This post sketches out a proof from first principles for a coherent political economic system herein called Fraternal Libertarianism. This system has the teleological* End as the maximization of happiness of all the people under its purview.

Axiom I:Based on Aristotle’s thinking in “Ethics”: Humans seek to and make decisions to maximize Happiness.

A person acts rationally in many dimensions to maximize his happiness. Not only his actual actions, but his thoughts of possible paths are virtual explorations of other paths that will maximize his happiness.

This Axiom also connects to the “pursuit of happiness” concept in the US Declaration of Independence. Jefferson changes the Lockean “life, liberty and property” to “life, Liberty and the pursuit of happiness”, perhaps following and generalizing “property” along Aristotle’s thinking. Individual freedom for the pursuit of happiness would be essential in a State to maximize happiness.

Generalization: The political and economic structure of a State should be such to aid or assist or promote the maximization of some kind of aggregation of the happiness of all citizens.

Axiom II: All Men are Created Equal. To generalize from that classic formulation, All People are Created Equal.

Immediate Results

1. Then applying the “all men are created equal” axiom, for the happiness of a State, the aggregation of individual happiness is a simple sum – equally weighted happiness of every citizen.

2. This philosophic system justifies crime controls as just behaviors by a few (that increase the criminal happiness) reduce happiness of many more.

3. Such a state would also permit a very large amount of personal freedom as the self-interest of each person to maximize his own happiness is then harnessed to maximize national happiness.

Assumed Economic-Behavioral Laws

These laws will be used to derive some general indication how the State would go about maximizing the aggregate happiness of its citizens.

Law of Diminishing Returns: After a moderate or large amount of wealth and power has been achieved, further unit accretions to an individual produce diminishing unit accretions of happiness.

Risk Aversion: Risk aversion is the reluctance of a person to choose an action with an uncertain addition to his happiness rather than another action with a more certain, but possibly lower, incremental happiness.

Results

4. Controls on the ruling classes would justified and necessary as they use power (economic or state) to enhance their own happiness often at the expense of the many. While the actions of a person in the ruling class would tend to increase his own happiness, by taking more and more resources and control over others, he depresses the happiness of the masses. And that aggregate amount of depression is larger than his increase, according to the law of diminishing returns for him and risk aversion for them.

5. A social support system can also increase the happiness of the entire community as the happiness of the masses is increased MORE than the costs of support system reduces the happiness of the wealthy & powerful classes (who pay for that system), also due to the principles of risk aversion and diminishing returns. By protecting the masses from the small risks of catastrophic loss and / or marginalization of their lives, the happiness of the nation is increased. The costs would be borne by the rich and powerful.

[NOTE: it also shows how a society can breakdown IFF a majority of its members become criminals – maximizing happiness then is the path of crime as in Somalia.]

This political system is called Fraternal Libertarianism, as it promotes maximum freedom for the common man, some restrictions on the ruling classes, and a social support system to prevent catastrophic individual human degradation.

One can think of this as a "trimmed" Libertarianism. The State and political economic system is largely Libertarian with maximal freedom for the common man, combined with the trimming done on each end of the distribution of happiness of its citizens. The vast middle part of the distribution is free to act according to their own individual choices to increase their own happiness. The accumulation of power and resources by the ruling classes is controlled - that is the "high end" trim. The happiness of the citizens at the lower end of the distribution is supported to reduce their degradation / poverty / marginalization. The "trimming" increases the total happiness of the State according to the laws of behavior of diminishing returns and risk aversion.

Historical support for such a System is quite strong and abundant. Innumerable great empires were destroyed by the rapacious greed of the ruling classes in creating more and more powerful aristocracies at the expense of the common man. And not aiding the masses in attaining some happiness led to inordinately destructive revolutions. And the freeing of the masses of people to lead their own lives as they chose individually (when by successful reforms or mass emigrations) led to a huge increase in happiness of the citizens.

Formerly I thought that what I called Populist Libertarianism was the correct political economic system for humanity, but as you can see, I was wrong. I had incorrectly maximized freedom, which is a means, instead of an End, which is happiness. Freedom can lead to more happiness. The above proof, however, shows that perfect freedom does NOT maximize aggregate happiness of all the people.

Markets

I re-bought some FCX and MT as short or intermediate term trade in 1-2-3 Fund. I'll buy more on a further pullback. These stocks hit my (mentally) pre-determined re-buy points. My reading of the charts suggests some support around S&P 1085. It might not hold. But I'll swing my bat here a few times to see if I can get a hit.

Teleological - adjective [$10]Teleological means exhibiting or relating to design of purpose especially in nature.Sentence: Fraternal Libertarianism has the teleological* End as the maximization of happiness of all the people under its purview. That is its design and purpose.

Thursday, January 28, 2010

Last Fall on October 27, 2009 I wrote Part I of this series. This Part II tries to explain another aspect of The Way the World Works.

To understand how human societies are structured, or should be structured, and how they change with time, we need to consider what human beings in their rational dimensions are trying to do, or accomplish.

The World at its deepest, most fundamental level exists in states and changes with time according to a principle of optimizing some End over all possible paths. For classical motions of physical bodies, that is the Principle of Least Action, where for all possible paths, the chosen one is that one with the Least Action ("Action" is a combination of kinetic and potential energy). For classical electrodynamic fields and gravitational fields, a similar Principle exists from which one can derive the State of Nature and its time evolution. And for quantum physics, the states of nature are those that produce the maximum probability amplitude when all paths (real and virtual) are summed with complex number phases that are the classical action.

For human actions, Aristotle in his great work, Nichomachean Ethics, showed that human beings act to maximize their happiness. And also the State, comprised of all humans in a community, would maximize the sum of all human happiness in it. A person has various means to increase his happiness: wealth, pleasure, honor, children, family unity, friends, charity, etc. All those are means to the End, which is happiness: For no one seeks happiness for the sake of something else. People do seek wealth, perhaps thinking it will increase their happiness, or pleasure, or honor, or security and happiness for their children, or for their friends, or security and continuity for their family, or do works of charity for others. All those rational (and instinctive) actions are means for maximize a generalized happiness.

In the same work, Aristotle shows that various "goods" (in the sense of that which is good) are points of excellence between extremes. These are the moral virtues of prudence, temperance , courage and justice. For example, courage is the habitual choice of a state between the extremes of cowardice and foolhardiness. The point of excellence depends on the facts of each situation, which a truly courageous person learns with training. [NOTE: this concept connects to Part I of this series noted above.] Again, social custom for these virtues applies a principal of optimization.

Modern economic theory also uses a principal of optimization: a vague term called "utility" is maximized by people in their rational choices; for firms, profit is maximized.

And consider how a serious rational decision is made by a thinking person: he/she would contemplate the future course of events and paths and alternatives, real and simply possible ones; and then choose the "best" one for him. Best in what way ? Most wealth ? Nope, many actions contradict that rule. Most honor ? Nope, again, many counter examples exist. To me, Aristotle was right: a thinking person choose that action, or path that seems to maximize his happiness. Of course, he might err. The future is often unknowable and not all facts are known when a decision must be made.

At the next level, a community would, or should, seek to maximize the happiness of all people in it.

But that's the subject of a coming blog post where I will use all this to propose how one can sketch out a consistent political and economic philosophy with these principles and what a State implementing it would look like.

As a teaser, I will herewith state that my prior thinking that a Populist Libertarian philosophy was correct was wrong and that it must be modified. This is an personal example of why one must keep reading and questioning one's ideas. Reading one book [Aristotle's Nichomachean Ethics] made me realize I had made a fundamental error: my prior thinking for the correct political and economic philosophy was maximizing a Means, viz. freedom, not an End, viz., happiness. Those are connected but are NOT the same.

Obama

I did not watch his speech. These State of the Union speeches have become exercises in mass propaganda. I will read accounts to find out if anything new or interesting was said.

Word of the Day

"Vulpine" - adjective [$10]Vulpine means 1. of or like a fox; 2. crafty, cunningSentence: Odysseus in the Homeric epics had a vulpine nature that was both celebrated and condemned.

Wednesday, January 27, 2010

That adjective perfectly fits the Davos World Economic Forum. I'm listening to interviews of some of its participants on Blabberg this morning. Such blather ! These certified members of the ruling classes [aka the rich & powerful] don't know anything about fields beyond their own expertise or nor anything about the lives and difficulties of the common man, yet pontificate about how the world should be run and how the lives of the common man should be ruled. By who ? Them.

They blab about bubbles. What is the one bubble rarely mentioned ? The huge flow of money from the rich to hedge funds that play trading games and disturb real economic funds flows. Do they discuss how to burst that bubble ? Nope. Why ? Because most of the participants invest in hedge funds. Or run hedge funds. Or their pals runs hedge funds.

What is the single biggest risk in the world financial markets ? Credit default swaps. ["CDS"] Those "weapons of mass destruction" permit hedge funds to speculate cheaply in the credit of many, many corporations and nations. Those also create dangerous interconnections among financial institutions that can drag the entire system down if a single large institution messes up. Who is talking about banning those ? Few. There's moi [me] and David Einhorn, the fellow who correctly analysed and anticipated the Lehman debacle. Maybe Warrren Buffet. Why ? The ruling classes like the turmoil and their hedge fund investments make money for them. AIG was a credit default swap blow-up. That should be enough to make one realize those instruments should be banned. (I'd settle for requiring 100% cash collateral for anyone writing a CDS).

Turmoil gives the ruling classes power. That's how many aristocracies were created in medieval times. The common man was forced to become a serf to buy "protection" from armed, wealthy tribal chiefs because of fear of raids and assaults. Over time, those aristocracies then gained more and more powerful from the central government and eventually destroyed the nations.

Today the lobbyists of the ruling classes are working hard in DC and the capitals of Europe to get more power over our lives and perpetuate their positions. Davos is one place they coordinate ideas and tactics. That place should be seeing huge demonstrations from the angry public. Instead, the press fawns over their access to the bosses. It's sickening and I annually, publicly rant about how I despise that forum.

Davos is strictly for the vomitorium.

Lending

Blabberg says banks aren't lending. True. But those airheads don't think why. Banks prefer to speculate or own in securities. That's where the money is going. Why ? Because their trading desks can make money AND because the regulatory rules favor securities. If a bank had to put up more Tier 1 capital to own securities - which would help underwrite the huge market value risks in them - they would shift assets towards loans they can manage better.

Of course, governments like banks to buy their debt .. as securities. Sheesh, soooo much of public comment is sheer propaganda, it's infuriating at times.

Bernanke

I support his confirmation. Battleship Ben was one crucial force in preventing a global depression. True, he was a bit slow, as readers of this blog know. But like big, slow battleships, once his salvos got going, he crushed the forces of darkness.

Besides, since he's been doing what I write for about 2.5 years, how can I complain ? He's obviously a loyal reader now ;-)

"Vomitous" - adjective [$100]Vomitous means 1. of, pertaining to, or causing vomiting; 2. (informal) repugnant, disgusting, nauseating [e. g. vomitous business methods].Sentence: Annually viewers of the financial media are subjected to vomitous reports from Davos, as the fawning press propagates the propaganda of the ruling classes as they seek more power over the common man.

Tuesday, January 26, 2010

If you are an entrepreneur, then you know what I mean. Now is the time you have to ramp up your preparation of material for the annual tax return tortures the State performs on you. You have to prepare 1099s and start filing the innumerable state forms and the Federal beast. Even with no employees, just contract service providers, the burden is large. And worse, the 1099s have to be typed on special forms. You can't just print them out. That's a burden the State puts on you to save them money.

Them. You know I gripe about what they do. Each state has its own tortures. Florida, for example, requires a corporation to file just one return, but Alabama requires two. Then one must file Delaware annual reports.

Every LLC, partnership or corporation you use to structure your business properly requires more forms and returns in every state and the Federal government. I have operations in many states. I file at least 50 returns this season every year. Most are done by a skilled accountant, but I must check them and provide him the raw material. I've done all these in the past by hand, so know that's involved. I still do a few state corporate returns myself by hand. Thus I DO know what I'm talking about, unlike many pundits and journalists.

For my personal return, I do it myself by hand and have done so for many, many years. The spreadsheet does the arithmetic, but I have to alter it to reflect tax law changes.

To call this system a disgrace and unholy burden is no understatement. And it's getting worse every year. The States are as bad or worse than the Federal government. How many jobs are lost due to these burdens on the entrepreneur ?

Congress and the ruling classes of course don't care. It's part of the method for them to control us.

This economic crisis needs to precipitate a new 21st century tax revolt !

Markets

Yesterday's bounce was wimpy, so I chose not to play. I'm standing aside for now.

Word of the Day

"Snarky" - adjective [$100]Snarky means 1. testy or irritiable; 2. (Urban Dictionary) tendency to make snide remarks.Sentence: Bunkerman spends this season every year in a snarky mood, due to the tax preparation and filing burdens on him from the State.

Monday, January 25, 2010

Why does every store want to spy on me ? All I want to do is to buy the product, perhaps even with that "old-fashioned" money, viz. cash. They want me to join their "rewards" clubs or get my phone number or even my name & address, too. This applies to nearly every large store that I've entered for at last a year, including Best Buy, Dick's, and the local supermarket.

Heck, Best Buy would not even let me spend $500 on Friday unless I gave them my phone number, name & address. Maybe they wanted more, but I told them what to do with their product and walked out.

These companies want the information to sell it to marketing companies who want to keep track of my purchases. Without knowing who I am, that information is less valuable. It's all about money.

Hello ... I don't want to be in your database. I don't want to get phone calls asking for surveys, or offering special products. I don't want your bleeping rewards !!! All I want is to spend some money and buy some goods you are offering for sale. If that so novel ?

This has been a public issue for a few years, but as usual, Congress is in the pockets of the ruling classes and does nothing to help protect our privacy. Europe is way ahead of the US on this issue.

Companies want the last four digits of my Social security number (e. g. the cable company). They say it doesn't violate my privacy since it's not the entire number. Uh ... BUT if many companies do that, one could hack into them, get it and them manipulate or steal my accounts using that same "security" code. How stupid is that "security" system !

To me, companies simply don't care about customers any more. Customers are cows to be milked. Or is that milched ? They want to put their leeches onto us and bleed us awhile until we drop to one knee, then scrape a few off so we can stand again.

Not me. I made my electronics purchase online from Amazon and saved $80. Sure, Amazon knows who I am as they will deliver the product to my home. But I already have a account there and it's that just ONE firm. Not a dozen or more.

Book of the Week

My Life as a Rebel, by Angelica Balabanoff (written in 1938). I just finished this book. It's an extraordinary first hand account of the earliest days of the socialist movement, the Bolshevik revolution in Russia, how it evolved into a criminal tyranny, and personal insight into Mussolini, his Fascism and how he seized power. Yes, these are all connected. Balabanoff was on that so-called sealed train taking Lenin to Russia thru Germany in 1917 and knew Mussolini before he was anybody.

Balabanoff was truly concerned about better conditions and life for workers and cared nothing for power (she almost starved as she refused special food allowances). That distinguishes her from most of the other famous revolutionaries (at least the ones who seized power). She left Russia in 1922 as Lenin, Zionviev and others had been stifling her for nearly the entire four years she spent aiding the Bolshevik revolution. She saw how it became distorted with terror, bureaucracy and corruption. She had deep, personal insights into all the leaders (Lenin, Trotsky, Zinoviev, Mussolini, etc.) and other famous figures like the American, John Reed (who died disheartened by events in Russia.)

She also saw how the Comintern became a mouthpiece of the Bolsheviks and cared nothing for other labor movements in the world. How ? She was its first Secretary ! Balabanoff knew many languages [Russian, French, Italian , English and German at least] and often acted as a translator at top level meetings.

You cannot understand the revolutionary era of the 20th century without reading this book. Dry histories simply will not convey what this first hand account does. Try to buy a copy on used book websites.

Markets

If the markets firm today, I might speculate on the long side after the first hour.

Word of the Day

"Curmudgeon" - noun [$10]Curmudgeon means 1. a cantankerous** person; 2. a bad-tempered or miserly person.Sentence: Is Bunkerman a curmudgeon for not wanting to strip himself of privacy when buying something, or perhaps just serious about protecting his personal information and habits ?

Friday, January 22, 2010

Obama, as a reader of this blog. He had stopped reading this blog quite awhile ago as he moved to the Statist camp with his foolish and fiendishly complex ObamaCare plan. But now, duly chastened by the Scott Brown win in Massachusetts, he's adopting some of my long propounded policies regarding banks and hedge funds.

In its essence, proprietary trading in a bank or securities firm is trading against their own customers. Every single $ of that profit comes at the expense of their own customers. Obviously, no financial institution with the privileged position of serving the public markets should be permitted to do that.

And that is precisely what destroyed Bear Stearns and Lehman Brothers and almost Merrill Lynch until Bank of American ate that road kill. Their balance sheets were swollen with illiquid, unmarketable proprietary trades and their cousin, unsold chunks of underwritings.

Not all failed banks failed from proprietary trading: Wachovia and Washington Mutual died from bad loans. BUT some did.

Why should a bank with access to the Fed be able to speculate with that money ? They should be prohibited from doing so.

And who hasn't been harmed by the giant banks gobbling up fine small banks ? The big boys raise fees and gouge customers. There is no economy of scale in community banking; the big banks buy them and then suck the community's money to "invest" in securities. This trend has been going on for years and it is not good.

Economies of scale ? Nope. Most bank fees much less at small banks that at the big ones ? And service is better at the small banks, too. Banks can and do contract out a lot of their computer services now anyway.

Of course SECURITIES firms do have some economies of scale. But the level of scale that provides those efficiencies has long been passed. Size is necessary for underwriting large bond issues. That critical size is way below the size of the big Wall Street Banks. And the reality is, they bank should pre-sell most of an issue anyway. If a bank gets stuck with anything, they miss-priced it.

One the the reason Citibank was in so much trouble is the leveraged loans it made (to get a big fee) and did not re-sell. That is simply bad business.

That whole industry needs a heavy dose of rationality and POPULISM.

Welcome back, Obama, as a reader. Keep reading this blog and adopt more of my populist libertarian ideas.

Thursday, January 21, 2010

A potential big problem in this hemisphere is Hugo Chavez, the tyrant of Venezuela. The correct historical model for understanding his antics is Benito Mussolini. As Mussolini did almost 100 years ago in Italy, Chavez manipulates the "masses" to get power. He doesn't care about the people at all; all he cares about is his own power. He's ruthless and a cunning liar, as was Mussolini. And he's likes to be a showman to get attention, as did Mussolini.

Don't believe all that Allied World War II propaganda denigrating Mussolini as a buffoon. He was a very, very dangerous person who did great evil. Adolf Hitler is famously quoted as saying that he owed everything to Mussolini, who showed how a small determined group could seize power and retain power. In that sense, Mussolini is partly responsible for begetting all the evils of Nazism.

Now we have Hugo Chavez as a 21st century Mussolini in our own hemisphere. He's having big economic problems, mostly of his own doing. What can we now expect ?

He needs a war to mobilize support and militarize his nation even more. Otherwise, the economic problems might lead to him losing power. That's all he cares about, himself.

Don't ignore this tyrant's bluster over Columbia. He clearly wants a war with Columbia to either conquer it to loot or simply to create more nationalist fervor in Venezuela that he can use to retain power.

So far, Obama has been firm, ignoring his threats and lies, while arming and helping Columbia. He needs to be very wary and keep some military assets in reserve to help if Chavez does a surprise raid ... or more.

Markets

The Green-Red rule prompted me to close out the call option speculation early yesterday for a small loss. No big deal - I hit the ball well, but Ms. Market caught my line drive. I'll keep my bat ready for another good pitch.

Ruling Classes

I am disgusted with all this press fawning over the views of "one of the world's richest men" over matters they know little about. I just heard Blabberg interview a Saudi prince about China. sheesh, what crap! Ditto re interviewing Soros or Gates or Buffet about anything except their primary expertise. This is a problem with the ruling classes - they want to tell everyone how to live and what to do. To the Rich & Powerful: Shut up and spend your money on something useful and good for humanity.

Word of the Day

"Occlude" - verb, transitive [$10]Occlude means 1. to stop up or close (pores or a surface), obstruct (a passage); 2. (Chemistry) absorb and retain (gasses or impurities).Sentence: Any implementation of populist libertarian philosophy would occlude the power of the ruling classes. In colloquial terms, go ahead and earn money, but don't try to become an aristocracy and don't tell the common man how to live.

Wednesday, January 20, 2010

The common man did it in Massachusetts - defeating the corrupt ruling cliques that run this formerly one party state. The energetic Scott Brown won the Senate election in a huge surge of support over the past month. Obama gets a poke in the eye from voters. Brown hugely carried independent voters. This election signals HUGE troubles for the overbearing and selfish Democratic party. In normal times, Coakley would have won by 20 pts.; she lost by 5 pts. That's a 25 point swing. With good candidates, the Republicans can regain the House in November.

In my thinking, the Rs need to go populist libertarian [ideologically] and run against the bosses, earmarks, public employee unions, hedge funds and lobbyists. They should emphasize truly pro-job policies, pro-common man policies, pro-freedom adn pro-human rights, not the phony Obama policies that would be the Death Star for US jobs and personal freedom. Uh ... read this blog for ideas.

Markets

A good rally yesterday, erasing Friday's losses. Here is a rule I use for "trades" - For a trade that ever shows even a modest gain [being "green"], IF it later shows a loss [going "red", I close it out at once. This rule eliminates wishful thinking and prevents holding on and on and enduring large losses. Now I will hold a trade awhile that shows a small loss at once. BUT if it later goes green, then red again, I close it. This is my "green-red" rule for closing trades.

The trouble ... sometimes I forget the rule.

For an application, it's now effective for my call option play: that trade shows a modest profit now. IF it ever goes red, that will be the sign for me to exit stage left, 23 skiddoo.

Word of the Day

"Uremic" - adjective [$10] and "Uremia" - noun [$10]Uremia means a toxic condition resulting form kidney disease in which there is retention of waste products normally excreted in the urine, usually accompanied by headache, nausea, vomiting and coma.Uremic means of or involving excess nitrogenous waste products in the urine (usu. due to kidney insufficiency). People with uremic poisoning can develop skin color that is a pale yellow. Used figuratively, a uremic color is a dirty yellow - the most hideous of hues.Sentence: The Democratic party shows signs of uremia; it hasn't cleansed itself for many years. But have the Rs reformed and can they look fresh and clean and not uremic ?

Tuesday, January 19, 2010

Perhaps that will become Obama's nickname. He continues to flail away and flop from issue to issue and go nowhere. He's delivered nothing for the economy, nothing for jobs, nothing for the common man and done nothing for human rights all over the world.

The book I heard about him before the election seems true - an empty suit with a speech. He seems to be in the pocket of Congressional leaders and is unable to push through a reasonable compromise on health care. Instead, he huddles with the Duchess of the wine & pearls set, the Dishonorable Nancy Pelosi, and the hack from Las Vegas, Harry Reid, shuts out moderates and crafts a secret bill with the plenty of payoffs to buy votes. What a disgrace !

Perhaps Massachusetts will put a stake into the heart of this monster today. That would be fitting - having a Massachusetts tea party to toss this 2,000 page oppressive law into the sea.

Markets

I put on a speculative long Friday on the pullback, by buying some call options on the S&P 500. I'm wary, but think there is more money flowing to stocks. News could change my mind, or the tape could. I'll post adds or sales in the comments in near real time.

Book of the Week

Classical Mechanics by L. D. Landau and E. M. Lifshitz. This is volume one of the famous Russian Course of Theoretical Physics for advanced undergraduates or graduate students. One needs calculus to the level of vector calculus to understand the mathematics, but the concepts are explained in simple, clear language.

The book derives the major classical conservation laws that govern the motions of all matter from simple principles and symmetries of the Universe: the principle of Least Action, Galileo's classical relativity principle, that space is homogeneous and isotropic and that time is homogeneous. Conservation of energy is derived from time symmetry, conservation of momentum is derived from the homogeneity of space and conservation of angular momentum is derived from isotropy of space.

The laws of motion of matter arise from the Principal of Least Action, which is an extremely broad, deep and remarkably universal method of deriving fundamental laws of physics. This principal has been used from classical mechanics and classical electrodynamic to quantum mechanics to relativistic quantum chromodynamics. It's mathematical form seems to capture something extraordinarily deep about the structure of the Universe. Understanding the classical formulation for the simplest particle mechanics gives one the firmest foundation for those other fields and for philosophical thought.

All that is covered in the first 24 pages of this 164 page book. This is one of my top ten books.

Word of the Day

"Avatar" - noun [$10]Avatar means 1a. an incarnation or embodiment, as of a quality or concept; 1b. a varying manifestation or aspect of a particular deity.Sentence: "Avatars Widen Realm of Virtual Reality on Internet", a headline from the WSJ 1/24/2001, page B1. Avatar is also the title of a blockbuster movie that I will NOT see in the theater.

Friday, January 15, 2010

The WSJ online today had an article that will give plenty of ammo to fans of soccer over football, that is, American football.

WSJ: "According to a Wall Street Journal study of four recent broadcasts, and similar estimates by researchers, the average amount of time the ball is in play on the field during an NFL game is about 11 minutes. In other words, if you tally up everything that happens between the time the ball is snapped and the play is whistled dead by the officials, there's barely enough time to prepare a hard-boiled egg. In fact, the average telecast devotes 56% more time to showing replays."

A three hour telecast of football - 180 minutes - provides 11 minutes of real action. That's a remarkable number; of all the time one watches, only 6% is truly productive. That is so pathetic. Ridiculous. Compare that to soccer. The "action" in soccer is nearly continuous while the clock is running. No huddles, no time-outs. Almost 90 minutes of real "action".

Alas, that's the problem with soccer. The "action" is .... almost non-existent. Rules make it very difficult to score; defense is paramount. Too many games are decided by penalty kicks.

A pox on both their houses.

Rugby is far, far superior to both: Non-stop real action, running plays, tackling, passing, kicking, no blocking, no pads. Watching a top quality game in London last Spring, I saw a drop kick goal made. In rugby, a skilled back seeing he's about to be tackled can kick the ball downfield, then run quickly to catch his own kick and keep on going. It's a very exciting game and fun to play, too.

There are clubs and leagues for rugby in the US in most major cities. Find out the schedule and go watch the game. Or find rugby games on the international channels on your cable or satellite TV. It sure beats sitting on one's butt watching all that non-action on TV in either soccer or football.

Markets

The grind goes on. Intel numbers were good. Today is option expiration day. Soon I expect another pop up. Krypto Fund has plenty of long exposure. I don't see much to speculate on the long side. The only postion of 1-2-3 Fund is VVUS, which is a long term play on some promising drugs. Fido Fund has RIG, DVN, COF, CLF and CCJ. A few of those are approaching levels that I might consider sales.

Word of the Day

"Disingenuous" - adjective [$10] an old one from the fileDisingenuous means lacking in candor.Sentence: These arguments against the new tax on bank liabilities by pundits and politicians in the pocket of the the big banks are disingenuous beyond belief. Consumers will pay ? Haha, 15 basis points is not even noticeable compared to the huge rates gouged from them on credit card loans. And those probably are off-balance sheet anyway, so not subject to the tax. Banks are recovering and it's not the time to tax them. Haha, they are paying huge bonuses to their internal speculators while not making loans to small business. This tax will be born primarily by trading house banks who leverage up with hedge fund loans and their own "bets" - that is, the reason the Street got into trouble in the first place. In my opinion, it's rather well-crafted.

Thursday, January 14, 2010

That is how the big Wall Street proprietary trading houses are houses of frauds. When you create a product to "sell" to customers and then sell the same or similar products short for their own account, it is simply a fraud and the lowest form of bunco. Yet the GS bigshot says it's risk management. No way, IF GS ended up net short, which they did. That's a play on the failure of their own product.

I was happy to see the former CA treasurer make that point bluntly to the big boss of GS.

This is one way that Wall Street proprietary trading is really a parasitical business to feed off their own customers. Every single proprietary trade with a "customer" is a play to make money off them. That whole business model is pure bunco. IF GA wants to be a hedge fund, let them be a hedge fund and drop the gloss of being a broker or an investment or commercial bank.

The same goes for every Wall Street firm and major banks. It's time for clarity and simplicity to be mandated on the public markets.

Markets

The grind up continues. I await S&P 1200 to appear on the horizon, or March, whichever is sooner, to re-buy a put ladder.

Word of the Day

"Bodeful" - adjective [$10]; and "Bode" - verb, transitive [$10]Bode means 1. portend, foreshow; 2. foresee, foretell (evil).Bodeful means ominous.Sentence: The new tax on large financial firms bodes much more to come. As long as Wall Street does not change its business practices, more and more taxes & regulatory shackles will be imposed over time.

Wednesday, January 13, 2010

More government lying - FT: "Greece was condemned by the European Commission on Tuesday for falsifying data about its public finances and allowing political pressures to obstruct the collection of accurate statistics."

More oppression and skulduggery in China - FT: "Google has said it will end the controversial censorship of its search service in China and risk being thrown out of the world’s most populous internet market, following what it claimed were Chinese-based attempts to hack into its systems and those of other international companies. The group also said it had found evidence of attempts to break into its Gmail system, with partial success in two cases, and many other attempts to trick “dozens” of human rights activists around the world in order to access to their email."

China is a military dictatorship ruled by a clique of Communist party officials; that's all one needs to remember.

Rules don't apply to Democrats. The normal process of legislation would be a full conference committee to reconcile the House and Senate versions of ObamaCare. But the Democrats are doing this among themselves behind closed doors.

Chavez continues to act the role of the 21th century Fidel - WSJ: President Hugo Chávez's decision to devalue Venezuela's currency in order to shore up government finances could backfire on the populist leader if the move leads to substantially higher prices and extends an economic downturn. Just days after Mr. Chávez cut the value of the "strong bolivar" currency, some businesses were marking up prices. Shoppers jammed stores to stock up on goods before the increases took hold."

The common element in all the above: malfeasance by the ruling classes. The only political system that can produce maximal freedom in a dynamical world over time is populist libertarianism, where the ruling classes are strictly regulated and controlled, while the common man is completely free.

He's responding to whistle commands and does a fine gather (aka an "outrun"), drives the sheep through various "gates" and then "sheds" one off the rest of the flock He really likes doing that. We have high hopes for him in the trials, but he's really our pet first. His aunt, Krypto, does this, too, but started lessons as an older dog, so is a bit behind. She might catch up fast as she's very smart.

Markets

Alcoa missed earnings. What a shocker - not ! Alcoa is a poorly managed company and is a serial misser. That company needs to be taken over by someone with better management.

Book of the Week

If you want to understand the early history of Central Asia, then read this book: The Empire of the Steppes: a history of Central Asia by René Grousset. This book covers Central Asia from the beginnings circa 2000 BC to the 18th century. Drawing hugely on Chinese sources, the changing cultures and peoples who populated this regions are described from the early Indo-European tribes, to the Turkic and Mongol tribes, the Arab invasions and on and on.

The book lays out many interconnections of cultures of China, India, Persia, Tibet and even to Rome. Why is this huge area dominated now by Turkic peoples and the religion of Islam ? How connected is Tibet to China ? What role did the "Silk Road" play and who created it ? The book has historical facts to help one understand all this.

I haven't finished it yet, but have already learned a huge amount. It's very dry history, but this book has the facts.

As a bonus, it helps one understand the art and culture of Afghanistan in antiquity. I wish I had read it before seeing the exhibit on the art of Afghanistan at the Metropolitan Museum in NYC last summer. I would have better understood the cultures that produced the art.

Monday, January 11, 2010

Chinese exports boom; they benefit also from the decline dollar as they peg their currency's value to the dollar.

In the "There's a Sucker Born Every Minute" Club, FT tell us that "A group of Russian oligarchs are priming their companies for multi-billion dollar London listings ". Gosh, a chance to buy shares in the Russian versions of "The Organization", aka Al Capone, Inc.

Bottom-feeders are scooping up US commercial real estate. FT: "The beleaguered US commercial real estate sector has been attracting a new wave of money from sources including foreign banks, US private equity firms, and a leading Chinese sovereign wealth fund."

The urban heat island continues. Temperature in the woods at my bunker - 7F; temperature in Boston - 18F. This is one of the many serious problems with the theory of human caused global warming. How much warming has really occurred and how much is systematic measurement error ? This has been raised and documented by many people checking the data, but of course the "scientists" on the government payroll deny and obfuscate the problems.

The states are in serious financial trouble. Years of ratcheting up spending on payrolls and benefits is now at a crushing level. Pensions and benefits of state employees much be cut. That means big political battles.

Market

The averages continue to grind up. I'll wait. I think the next big money for a speculation will be in a correction sometime this quarter or early next. Seasonal money flows tend to dry up around April, and that's when the Fed's purchases of mortgage securities is scheduled to end.

Friday, January 8, 2010

WSJ: "It was his strongest and most detailed response to the Christmas Day attempt to blow up an airliner bound for Detroit. "We are at war," the president said. "We are at war with al Qaeda."

He said he took responsibility ... and proceeded to blame low level persons and made no changes in his top people.

"Mr. Obama said he would avoid policy changes that would curtail civil liberties or freedom of movement: "We will not succumb to a siege mentality." "

Really ? He's buying scanners to effectively perform strip searches of every American when they travel. Meanwhile, he's closing Guantanamo and is still releasing terrorists to commit terror again. He's not at war with Al Quaeda, he's at war with the American people. They are the ones to suffer demeaning searches and travel restrictions. In a "war", you kill your enemies; Obama isn't killing the terrorists, he's "arresting them". Sort of.

His head of Homeland Security is the one more concerned with returning US soldiers as prospective terrorists than with person known to contact extreme mullahs in Yemen. Great people you're sticking with, Bloviator.

The Bloviator continues to be a skilled rapscallion [*Word of the Day 12/29/2009] and mountebank.

Economy

Long term mortgage rates are going up a lot this Spring. Here's the clue.

WSJ: "The Fed now holds $909 billion of mortgage-backed securities. In the past year it has purchased 73% of the mortgages that government-backed Fannie Mae, Freddie Mac and Ginnie Mae have turned into securities. Purchases by the Treasury pushed total government purchases above $1 trillion. The Fed says it plans to top off its purchases at $1.25 trillion by the end of March ... "

The Fed's balance sheet will peak and when it does, interest rates will return to normal levels. That means core inflation (2%) plus a real rate of return in the range of 2.5-3% for 10-30 year bonds. Mortgage rates should be at least 1.25% more per the value of optional par prepayment. That means the 10 year Treasury is going to 4.5% minimum and mortgage rates to at least 5.75%.

Actions

Doing nothing. I will wait for this push to 1200 to weaken, then buy a new put ladder at those higher levels. Earnings season could change my outlook.

Reading Quiz

When was this written? -> "There is, of course, some connection between the scene outside and the mind through which we watch it, just as there are some long haired men and short haired women in radical gatherings."

"Helot" - noun [$10]; the 'e' can be pronounced either short or long.Helot means 1. one of a clan of serfs in ancient Sparta; 2. a serf, a bondsman.Sentence: If Federal power as claimed under ObamaCare to force a person to spend money as directed by the government is upheld, the citizen's descent into the helot class will be complete. Our real property is not ours already, thanks to the liberals on the Supreme Court.

A Fine SongHere's the link to a melodic and fun song by the greatest female singer of the 20th century ->

Thursday, January 7, 2010

I have personal, real-time proof that time diversification works. No surprise, actually, as one can prove that mathematically. But even in the recent market debacle of an alltime high in the S&P and then a bone-shattering 50%+ fall, investing over time can put one ahead.

Here's the proof.

In early 2007, I opened an joint account with Mrs. B at a local stock broker's office - a real full service broker, by the way. I put quite a bit money into this account in 2007 when the S&P was near its all time high over 1500. Over the next three years (approximately), more money was added including a good chunk in October 2008 when the fear factor was very high. Some of that was used to buy municipal bonds, but some was put into stocks, too (US big cap stocks). I checked the account this morning and it shows an overall gain. Yes, even now with the S&P at only 75% of its value when we started, the account shows a profit.

I make this point because some pundits are saying that long term investing is dead, that every one should trade, and that "buy and hold" is dead. This is irrefutable proof that investing long term with time diversification works even in very hard markets.

The proper investment method was never "buy and hold". It's always been buy over time and re-allocate among asset classes. Let's kill the straw man of "buy & hold" once and for all. And at the same time, put a sock in the big mouths of the new pundits advocating trading for all, or worse, advocating using professional managers in hedge funds.

Languages

My effort to learn six languages continues. I've accelerated my Italian work and slowed work on Spanish. I just like Italian better: it's poetic, very expressive, not grammatically hard, easy to pronounce, and culturally rewarding. Polish, German and French work continues as before. My ability to read newspaper headlines in all three is making marked improvement. Of course, my French is much further along as I started it six months earlier than the others.

Fwiw, I work on these about three hours a day, more or less.

Actions

I sold the put options yesterday morning when the market turned up. The pressure of loss of time premium is very large this close to expiration, so I elected to get what I could out of this position before it was wiped out. The New Year effect I was looking for clearly was not happening. Better to 23 skiddoo. I'll wait now for a new idea for my speculations.

Word of the Day

"Heigh-ho" - interjection [$10] from ShakespeareHeigh-ho expresses boredom, resignation, etc.Sentence: For the last few days of news - actually, the lack thereof - all I can say is, heigh-ho.

Wednesday, January 6, 2010

Old Man Winter rolls along. Britain and France are suffering from large snowfalls and below "normal" temperatures.

WSJ: "The U.K. and France on Tuesday braced for a front of severe weather as heavy snowfall and ice caused widespread disruption to air, rail and road networks.Meanwhile, China faces potential power shortages as parts of the country struggle with the coldest weather in decades, authorities said. The cold spell is expected to persist through the week, driving up demand for heating and electricity." ...

"This winter has been the coldest in years, driving a surge in demand for heating fuel. U.K. authorities on Monday urged power suppliers to switch temporarily from gas to other fuels such as coal. The measure, known as a gas balancing alert, has been used only once before, in March 2006." ....

"In China, Beijing faced its coldest weather in half a century on Tuesday, near zero degrees Fahrenheit, while residents dug out from the worst snowfall in decades. Services were gradually being restored on Tuesday after schools, airports, roads and railroads closed Monday."

This seems like punishment from the weather gods for man's hubris in thinking that he controls climate. Where are the press releases from the climate pumpsters ? I suppose they are hiding ...

Iceland

What am I missing ? thousands of UK and Netherlands "investors" send billions to Icelandic banks over the Internet. The banks invest the money badly and collapse. Then for political reasons, UK and Netherlands governments pay off the "investors". And now they want the people of Iceland to pay them off. Iceland is a very small nation of only 300,000 people, less than 1/2 the population of Boston. The payoff would amount to $20,000 per person.

That's nuts. Tell UK and Netherlands to go fishing.

Actions

Futures are down early. If they stay down, I'll let my put play roll on. If not, it's 23 skiddoo.

Word of the Day

"Cognomen" = noun [$10]Cognomen means 1. a nickname; 2. an ancient Roman's personal name or epithet, as in Marcus Tulius Cicero or Pubius Cornelius Scipio Africanus.Sentence: Either cognomen applied to Obama by this blog seems to fit better and better: La Grande Boucher or The Bloviator.

Tuesday, January 5, 2010

is causing the deep freeze in the US and Europe. Global warming causes snow, too. The "scientists" can concoct theories and computer models to make global warming cause anything.

WSJ: "Temperatures fell below zero from the Great Plains to the Northeast, following a weekend of heavy snow. The reading of minus-16 degrees in St. Joseph, Mo., Monday marked the city's coldest Jan. 4 since 1947, while minus-37 in International Falls, Minn., Sunday was the coldest there since 1911, said Frank Pereira, a meteorologist at the National Weather Service." ...

"The cold snap is one of the nation's most widespread since January 1985, according to meteorologists at Accuweather.com. While the cold is expected to ease slightly starting Thursday, this winter is on track to be one of the coldest in the past decade or two, said Ken Reeves, director of forecasting operations at Accuweather.com."

How can this be ? A lower low in the temperature chart ? Don't the computer models show an accelerating trend up ? Hellooooooooo ?

Obviously, they do not include major physics and processes, if they can miss a huge turn down without even a hint. It's time to junk most of them, fire most of the "scientists" and return to basic research.

Actions

My put speculation was pounded yesterday after looking prescient on Thursday. I'll give is a couple days as my memory includes some years when these first day pops were quickly hammered.

Word of the Day

"Hermeneutic" - adjective [$10]Hermeneutic means interpretive; explanatory.Sentence: Hermeneutic descriptions of the behavior of the world climate should be based on rigorous basic research, not phenomenological computer models with thousands of free parameters.

Monday, January 4, 2010

Krypto Fund returned 21.56%, beating most hedge funds according to FT. Krypto Fund uses a simple asset allocation model on Excel to invest the long term money among asset classes: cash, TIPs, bonds, US stocks, Foreign stocks, real estate and precious metals. The fees are dog biscuits, paid to the manager, Krypto, my dog, who pushes a button on the computer to re-allocate. Who needs beefers ?

What do we know now that we did not know one year ago ?

First

The big banks all repaid TARP in 2009. Losses, while large, were not the industry-wide monumental tidal wave that the bomb throwers proclaims so stridently in 2008. That means that "most" of the collapse in the financial markets in 2008 truly was a simple panic, not the incurable end of the world proclaimed.

How did the panic get so bad ?

Simple: huge money pools of hedge funds sloshing around worldwide making huge "bets" on collapse through short selling (often naked) and credit defaults swaps. The simple answer is, "The beefers did it."

Don't overstate or understate this. There was more than smoke. There was a modest fire that the Fed was controlling. But then the beefers threw on the gasoline.

The TARP investments in the big banks helped stop the panic, which was truly out of control as a run on the bank in money market funds was incredibly dangerous. Note: only one major money fund broke the buck, due to excessive investment in Lehman paper.

Second

This means that the Republicans in Congress were completely wrong in causing the initial defeat of TARP. After that defeat, the stock market fell 20% and the retirement assets of a generation were gutted. The market has "almost" recovered that, but not quite. The pure libertarian philosophy, while so attractive in theory, proved again to be inadequate in a dynamical world.

Third

The public was NOT right, either in its opposition to the TARP or in its belief that housing was a retirement asset that could not go down. That belief led millions upon millions of them to commit to pay too much of their income for housing, thinking it would go up in value to let them repay that huge debt burden. This was a "greater fool" bubble by the PUBLIC. The group thinking of the people was WRONG.

Book of the Week

"Public Opinion" by Walter Lippmann. This excellent book was written in 1922 by the man who became the first nationally syndicated columnist and wrote a hugely influential column for forty years. The main point of the book is that the public and most governmental leaders have insufficient information to make truly informed decisions about modern, complex issues. I state part of his thesis thus: "polls based on ignorance are meaningless". They are useless for making informed, correct decisions.

It's remarkable to me that this book and its arguments seem foreign to modern journalists. They blather endlessly about what the people think about some issue yet Lippmann almost 90 years ago knew, and showed, that the people mostly are ignorant of even the simplest facts or theory to base a truly informed opinion. Lippmann had personal experience in the World War I propaganda machine and knew both its power and the difficulty informing the people.

He also was one of the rich and powerful and recognized the power of his class. He recognized how they often used their power to gather more power and wealth.

I haven't yet finished the book, but so far, it's a jewel.

PS: The new edition with the introduction by Lippmann's biographer, Ronald Steel, is best.

Word of the Day

"Scry" - verb, intransitive [$10]Scry means to divine by crystal gazing.Sentence: Bunkerman did not scry to learn the conclusions in today's blog; they came from the application of simple principles and ruthless logic to events in the public press.

About Me

I have a pioneer mentality. My wife & I live in the woods - neighbors aren't visible except slightly in winter. Our "bunker" - hehe, really a fine home & barn - has plenty of security. We have four dogs: Krypto (age 9, Kelpie), Ava (age 13, Rat Terrier), Sky (Kelpie, age 5) and Lucky Star (age 1, kelpie). I don't take crap from anyone anymore, having enough resources & gear stocked up to survive in any circumstance.
I have three degrees from Harvard including a Ph. D. in a physical science, and an MS in Management from MIT. I worked as an investment banker for about 25 years, mainly in secured finance, at three major Wall Street firms and for the last 17 years with my partners at our own firm. I'm semi-retired now, managing some private corporations and business interests and doing my own trading & investing. This is not to boast, but to give you an idea I know a little about some subjects from experience.
The photo is my 1943 M16 half-track which I am restoring. These armored vehicles were ubiquitous in the US Army in World War II and Korea. It's driveable.